SUMMARY4
Explain what a bid-ask spread is. Which price would you pay if you are purchasing a stock? Which would you receive if you were selling a stock?
Explain the role of brokers in modern stock markets. Why are they important?
Contrast long and short positions in stocks.
Illustrate the mechanics of a short sale.
List several market indices used to measure the performance of Saudi securities.
Determine how Depositary Receipts (DRs) facilitate trading in foreign securities.
Explain why an investor should not expect to outperform the market on a consistent basis.
You purchase 100 shares for SAR 500 a share (SAR 50,000), and after a year
Repeat Problem 1 to determine the return on your investment, but in
A stock is currently selling for SAR 45 a share. What is the gain or loss on the following transactions?
A sophisticated investor, Nasira, wanted to engage in a short sale. Nasira
Abdullah purchased 200 shares of a pharmaceutical company for SAR 25
Thana buys 100 shares of a software company, DEM, at SAR 35 a share and 200 shares of GOP at SAR 40 a share. She buys on margin.
After an analysis of an electronics store, Omar has concluded that the
Lina buys stock on margin at SAR 20 per share. The margin requirement
Ali sells short 1 stock which is currently priced at SAR 20. He is able to repurchase it for SAR 16. What return does he make?
Nawaf sells short 100 shares of a stock priced at SAR 50. He repurchases them for SAR 53 each. What return does he make?
The Tadawul Exchange:
An investor can also earn a profit from a decline in the price of a stock by taking a:
Match the terms listed with their definitions. Write the letters of the correct definitions.
18. Market capitalization- weighted index
Margin = Equity Total value of portfolio
Investment Decisions
Considering the information presented in this chapter, what are the investment options Ali has for his brokerage account?
Help Ali understand the difference between the Tadawul exchange and the Nomu Parallel Market by describing each market.
Efficient Market Hypothesis
Define in your own words the efficient market hypothesis.
Use the efficient market hypothesis to explain why it is very difficult to beat the market.
Long and Short Sales
Determine Omer’s return on his investment in Company ABC, long position, if Omer buys at SAR 25 and the stock rises to SAR 30 within a year.
Determine Omer’s return on his investment in CGQ using a short sale if he borrows a share of CGQ from his broker and sells this for SAR 25
Justify which of these investment strategies you would recommend to Omer.
CASE STUDY: INVESTMENT STRATEGIES
Yasser has also found many other Saudi brokers in the Members Directory.
Use the Invest Wisely website to make a recommendation on how Yasser should develop his financial plan.
List the reasons that Yasser should consider using a personal broker to help him invest.
Research a broker in Saudi Arabia other than SNB. Identify the services offered
